S&P: Road to Oil Independence Won't Be Pretty

Jan. 1, 2020

NEW YORK (July 5, 2006) - According to a Standard & Poors' (S&P) report, "A Long, Slow Drive Away From Oil," the load on consumers and energy-intensive industries from higher oil prices will be bearable, though not pleasant ...

FUTURE FUELSS&P: Road to Oil Independence
Won't Be Pretty NEW YORK (July 5, 2006) - According to a Standard & Poors' (S&P) report, "A Long, Slow Drive Away From Oil," the load on consumers and energy-intensive industries from higher oil prices will be bearable, though not pleasant. However, current conditions could provide the impetus for a measured transition from oil to a variety of substitutes if both policymakers and consumers accept the realities and seize the opportunities available. "In the U.S., the biggest threat to the broader availability and use of oil substitutes is political. Were the U.S. to abolish the gasoline tax and control oil prices, for example, the effect would be to encourage Americans to keep on wasting energy while doing nothing to expand the supply," says David Wyss, Standard & Poor's chief economist. The report noted that despite oil reserves being depleted within a few generations, and even with efficiency improvements in extracting and using oil, the United States leads the world in energy consumption per capita. With approximately five percent of the world's population, America consumes nearly one-third of all the world's oil supply per annum. Oil Consumption Per Capita

(Graphic: Standard and Poors)

Integral in the mix is the refusal of the American public to face realities. The report notes that the false, but closely held, inalienable belief in the right to burn cheap fuel continues to drive consumer sentiments and behaviors, as well as political decisions. In effect, the malaise hinders the dimensions of alternate energy programs and the velocity towards the realization of their goals, according to S&P.

Also under the radar of many consumers and political officials is the ongoing shift in control of oil by companies, such as Exxon and Shell, to national governments such as Venezeula and Bolivia, whose inefficiencies in management and production will drive prices higher - faster and sooner. Without enough control, the economic incentive for oil companies to provide upkeep, let alone new investment, may well wither worldwide, similar to the decline in U.S refinery capacity over the past few decades.

Despite technological improvements, rising fossil fuel costs and public support, S&P believes alternative and renewable energy will remain a relatively small part of global energy supply over the next 25 years. "Although global efforts to advance the use of alternative and renewable sources of energy are underway by public, private and government entities, no formal or informal coordination system has been developed, and it's difficult to quantify the specific impacts of the programs," says Tina Vital, equity analyst, S&P's Equity Research Services.

"Higher prices are the market's signal for people to use less and energy producers to find more, and anything that short-circuits this signal makes the problem more difficult to solve," advises Wyss. Eventually, she says, higher prices will reach a level that will drive the convergence of consumer awareness, political leadership and coordination efforts into a critical mass. The question is when, and will it be soon enough to avoid real hardship?

(Source: S&P)